“I See What You Mean” (Big Blue Bear) created by Lawrence Argent, photograph by Elizabeth ThomsenYou may be surprised to know that in the Denver metro area, The Home Affordability Index (HAI) is at its highest recording ever. What does that mean? The HAI compares the median price of a home in the Metro Denver real estate market to the median income level, and brings the current interest rate for a 30-year fixed rate loan into the equation. As a home buyer this is good news as the median income earner can buy more house today than ever before. Why? Because home prices, while rising quickly, are still well below their peak prices of 5-6 years ago and interest rates are at never-before-seen historic lows. It is the interest rates that continue to make homes so wonderfully affordable, so let’s dig into those a bit.
The typical rate on a 30-year fixed mortgage tumbled below 3.5% for the first time last week, the latest record low in a trend that has fired up homes sales around the country. Freddie Mac’s weekly survey of what lenders are offering to qualified borrowers showed the 30-year rate at an average of 3.49%, down from 3.53% the week before. The 15-year fixed loan fell from 2.83% to an almost unbelievable 2.8%! Let’s put this in perspective. In late July 2010 and 2011 the typical 30-year rate in the Freddie Mac survey was just over 4.5%, more than a percentage point higher than now. The 30-year rate was above 6% in 2006 and most of 2007, over 8% back in 2000, and over 10% in 1990. Back in the bad old days of inflation, the rate topped 18% in 1981. Look at how the interest payments affect your monthly Principle and Interest payments:
$200,000 property in 1981 at 18% interest: $3,014
$200,000 property in 1990 at 10% interest: $1,755
$200,000 property in 2000 at 8% interest: $1,467
$200,000 property in 2007 at 6.5% interest: $1,264
$200,000 property in 2011 at4.5% interest: $1,013
$200,000 property in 2012 at 3.5% interest: $898
But wait, there’s more! According to a recent CNN Money article the average cost of closing on a mortgage has fallen by 7.4% over the past year. At the end of June, a homebuyer looking to close on a $200,000 mortgage with 20% down paid an average of $300 less than 12 months earlier. Even if you don’t have 20% down payment saved, you can put 3.5% on an FHA mortgage. Very attractive, no?
No one knows how long these historically low rates can last. But in the meantime my clients are taking advantage of them to buy the homes of their dreams and lock in once-in-a-lifetime interest rates.